David & Libby Rise above your crisis
Financial crisis? It’s awful, but you can work your way out of it. This is how
YOU wouldn’t wish a personal financial crisis, or PFC, on anyone. It can be so debilitating. It can feel as though your whole life is about to come crashing down like a house of cards.
A PFC can be triggered by a range of factors but the most common is a debt burden which has careered out of control.
But with discipline and some hard work, there is a way out. Here’s our six-step guide to how to turn things around as quickly as possible.
1. UNDERSTAND THE BIG PICTURE
Before anything else, draw up a list of all your assets and debts to get a bird’s eye view of where you’re at financially. Then, build a budget to work out where your money actually goes.
It’s simple to do. In one column list your income and in another pull together all of your regular and irregular expenses.
Run a fine-toothed comb through last month’s receipts and bank statements to make sure you’ve listed expenses accurately.
2. SET SMART GOALS
If you’re in a sticky financial situation, your main goal is probably to get out of it as quickly as possible, which is reasonable. But it’s not a financial goal.
A good financial goal has a definite deadline and can be broken down into manageable steps. For example, it’s much better to say, “I want to be rid of my credit card debt by Christmas, which means I need to repay $150 a week for the next four months”.
3. TAKE CONTROL OF YOUR SPENDING…
With a budget and some welldefined goals to work towards, it’s time to take control.
Think about your spending in terms of wants and needs. Needs are non-negotiable – for example, you’ll always need to make room for groceries.
Wants are nice-to-haves such as gym memberships, new clothes or eating out, and if you’re in the midst of a PFC these should be the first things to go.
4. … AND YOUR DEBTS
First, look at whether you can minimise the interest you’re paying, for example through a credit card balance transfer or by consolidating multiple debts to reduce the interest. Go online to GetCredit score.com.au to find out your score then either go to your bank and get a better deal on consolidating debts into a personal loan or use an alternative like a peer-to-peer lender.
Next, try to channel all of your additional money into making extra repayments, which will save interest and help you pay off the debts faster.
(Don’t be afraid to use your savings to make extra repayments. Money in the bank only earns around 3 per cent these days, while credit cards or personal loans still charge interest rates in the double digits.)
Finally, if you’re having trouble repaying a debt or bill, speak to your lender or biller immediately. They may be willing to negotiate more favourable terms and you could avoid a black
6. FUTURE PLANS
Hopefully, these steps help you take control. But a PFC could happen again, so be prepared. Start setting aside money in a savings account to cover unexpected expenses. And do a full review of your insurance, both for things and for you and your family. This will ensure you can weather the
next PFC if it comes.